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Carmax Misses

Carmax (KMX) reported 4th Quarter February 2018 earnings of $0.77 per share on revenue of $4.1 billion. The consensus earnings estimate was $0.89 per share on revenue of $4.2 billion. The Earnings Whisper number was $0.88 per share. Revenue grew 0.8% on a year-over-year basis.

CarMax Inc together with its wholly owned subsidiaries is engaged in sales of used vehicles in the United States. It operates in two reportable segments: CarMax Sales Operations and CarMax Auto Finance.

Used unit sales in comparable stores declined 8.0% in the fourth quarter, while they increased 2.0% for the fiscal year.

•

Total used unit sales fell 3.1% in the fourth quarter, while they rose 7.5% for the fiscal year.

•

Total wholesale unit sales increased 8.9% in the fourth quarter and 4.3% for the fiscal year.

•

CarMax Auto Finance (CAF) income increased 21.9% to $101.1 million in the fourth quarter. For the fiscal year, CAF income increased 14.1% to $421.2 million.

•

In the fourth quarter, net earnings declined 20.0% to $122.1 million and net earnings per diluted share declined 17.3% to $0.67.

*

In connection with the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”), net earnings for the current year’s fourth quarter were reduced by $32.7 million, or $0.18 per diluted share, for the revaluation of our net deferred tax asset. Net earnings were also increased by $20.8 million, or $0.11 per diluted share, primarily due to the reduction in the statutory federal tax rate.

*

Net earnings for the current year’s quarter were reduced by a one-time discretionary bonus of $8.0 million, or $0.03 per diluted share net of taxes, paid to eligible associates.

•

For the fiscal year, net earnings increased 5.9% to $664.1 million and net earnings per diluted share increased 10.4% to $3.60. Net earnings for the full fiscal year were reduced by the fourth quarter items noted above.

Total wholesale vehicle unit sales increased 8.9% compared with the fourth quarter of fiscal 2017, largely driven by the growth in our store base and an increase in our appraisal buy rate.

Other sales and revenues decreased 4.5% compared with the fourth quarter of fiscal 2017. Extended protection plan (EPP) revenues declined 2.4%, primarily due to the decline in used unit sales. The $5.0 million reduction in third-party finance fees reflected shifts in our sales mix by finance channel, including a decline in our Tier 2 and an increase in our Tier 3 sales.

Gross Profit. Total gross profit decreased 4.5% versus last year’s fourth quarter, to $536.7 million. Used vehicle gross profit fell 2.5%, largely the result of the 3.1% decline in total used unit sales. Used vehicle gross profit per unit was similar at $2,147 compared with $2,134 in the prior year period. Wholesale vehicle gross profit increased 9.8% versus the prior year’s quarter, primarily driven by the 8.9% increase in wholesale unit sales. Wholesale vehicle gross profit per unit was comparable at $946 versus $938 in the prior year period. Other gross profit declined 24.2%, reflecting a decrease in service profits, together with the noted changes in EPP revenues and net third-party finance fees. Service profits were affected by the reduced leverage of service department costs resulting from the decrease in comparable store used unit sales. In addition, approximately half of the total one-time discretionary bonus was paid to service department associates.

SG&A. Compared with the fourth quarter of fiscal 2017, SG&A expenses increased 6.1% to $408.8 million. Factors contributing to the increase included the 11% increase in our store base since the beginning of last year’s fourth quarter (representing the addition of 19 stores), partially offset by a decrease of $8.6 million in stock-based compensation expense. In addition, approximately half of the total one-time discretionary bonus was included in the current quarter’s SG&A. SG&A per used unit was $2,397 in the current quarter, up $207 year-over-year, largely reflecting the deleverage associated with the decline in comparable store used unit sales. The decrease in stock-based compensation expense reduced SG&A per unit by $47.

CarMax Auto Finance.(1) Compared with last year’s fourth quarter, CAF income increased 21.9% to $101.1 million. The increase resulted from the combined effects of a decline in the provision for loan losses and the growth in average managed receivables, partially offset by a lower total interest margin percentage. The provision for loan losses declined 16.7% to $38.6 million, compared with $46.4 million in the prior year quarter. The prior year’s provision was affected by rising loss experience during fiscal 2017 and an update in our assumptions used in determining the loan loss allowance, while losses in the current year’s quarter were generally consistent with expectations. The allowance for loan losses as a percentage of ending managed receivables was 1.11% as of February 28, 2018, flat with the allowance percentage as of November 30, 2017, and down from 1.16% as of February 28, 2017. Average managed receivables grew 9.4% to $11.54 billion. The total interest margin percentage, which reflects the spread between interest and fees charged to consumers and our funding costs, was 5.6% of average managed receivables compared with 5.7% in last year’s fourth quarter.

Interest Expense. Interest expense rose to $19.7 million in the fourth quarter of fiscal 2018 from $16.4 million in the prior year’s fourth quarter. The increase principally reflected a reduction in capitalized interest and higher interest rates in fiscal 2018.

(1)

Although CAF benefits from certain indirect overhead expenditures, we have not allocated indirect costs to CAF to avoid making subjective allocation decisions.

Income Taxes. The effective tax rate increased to 41.9% in the fourth quarter of fiscal 2018 from 37.0% in the prior year’s fourth quarter. The current year’s fourth quarter effective tax rate was affected by an $11.9 million increase in tax expense as a result of the 2017 Tax Act, including:

•

The $32.7 million increase in tax expense associated with the revaluation of our net deferred tax asset, which increased the fourth quarter effective tax rate by 15.6 percentage points.

•

The $20.8 million decrease in tax expense primarily resulting from the reduction in the statutory federal tax rate, which reduced the fourth quarter effective tax rate by 9.9 percentage points.

In future quarters, we anticipate that our effective tax rate will generally be around 25%.

Store Openings. During the fourth quarter of fiscal 2018, we opened four stores. We entered two new television markets (Myrtle Beach, South Carolina and Portland, Maine) and we added two stores in existing television markets (Boston, Massachusetts and Denver, Colorado).

Share Repurchase Activity. During the fourth quarter of fiscal 2018, we repurchased 1.9 million shares of common stock for $127.8 million pursuant to our share repurchase program. As of February 28, 2018, we had $1.02 billion remaining available for repurchase under the current authorization.

Fiscal 2019 Capital Spending Plan

We currently plan to open 15 stores in fiscal 2019 and between 13 and 16 stores in fiscal 2020. Of the 15 stores we plan to open in fiscal 2019, 10 are in metropolitan statistical areas having populations of 600,000 or less, which we define as small markets. This is an increase from fiscal 2018, when 6 out of our 15 store openings were in small markets. We estimate capital expenditures will increase to approximately $340 million in fiscal 2019.

Supplemental Financial Information

Amounts and percentage calculations may not total due to rounding.

Sales Components

Three Months Ended February 28

Years Ended February 28

(In millions)

2018

2017

Change

2018

2017

Change

Used vehicle sales

$

3,429.2

$

3,450.3

(0.6

)%

$

14,392.4

$

13,270.7

8.5

%

Wholesale vehicle sales

527.2

465.9

13.2

%

2,181.2

2,082.5

4.7

%

Other sales and revenues:

Extended protection plan revenues

82.0

84.0

(2.4

)%

336.4

305.5

10.1

%

Third-party finance fees, net

(14.1

)

(9.1

)

(54.2

)%

(49.9

)

(38.4

)

(29.9

)%

Other

59.8

58.9

1.6

%

260.2

254.9

2.1

%

Total other sales and revenues

127.7

133.8

(4.5

)%

546.7

522.0

4.7

%

Total net sales and operating revenues

$

4,084.2

$

4,050.0

0.8

%

$

17,120.2

$

15,875.1

7.8

%

Unit Sales

Three Months Ended February 28

Years Ended February 28

2018

2017

Change

2018

2017

Change

Used vehicles

170,572

176,017

(3.1

)%

721,512

671,294

7.5

%

Wholesale vehicles

99,226

91,143

8.9

%

408,509

391,686

4.3

%

Average Selling Prices

Three Months Ended February 28

Years Ended February 28

2018

2017

Change

2018

2017

Change

Used vehicles

$

19,925

$

19,435

2.5

%

$

19,757

$

19,586

0.9

%

Wholesale vehicles

$

5,076

$

4,910

3.4

%

$

5,102

$

5,106

(0.1

)%

Vehicle Sales Changes

Three Months EndedFebruary 28

Years EndedFebruary 28

2018

2017

2018

2017

Used vehicle units

(3.1

)%

13.4

%

7.5

%

8.3

%

Used vehicle revenues

(0.6

)%

11.7

%

8.5

%

6.7

%

Wholesale vehicle units

8.9

%

(1.2

)%

4.3

%

(0.7

)%

Wholesale vehicle revenues

13.2

%

(7.9

)%

4.7

%

(4.8

)%

Comparable Store Used Vehicle Sales Changes(1)

Three Months EndedFebruary 28

Years EndedFebruary 28

2018

2017

2018

2017

Used vehicle units

(8.0

)%

8.7

%

2.0

%

4.3

%

Used vehicle revenues

(5.6

)%

7.1

%

2.9

%

2.7

%

(1)

Stores are added to the comparable store base beginning in their fourteenth full month of operation. Comparable store calculations include results for a set of stores that were included in our comparable store base in both the current and corresponding prior year periods.

Used Vehicle Financing Penetration by Channel (Before the Impact of 3-day Payoffs) (1)

Three Months EndedFebruary 28

Years EndedFebruary 28

2018

2017

2018

2017

CAF (2)

48.2

%

48.4

%

48.4

%

49.5

%

Tier 2 (3)

15.4

%

18.2

%

16.6

%

17.8

%

Tier 3 (4)

11.7

%

9.4

%

10.5

%

9.8

%

Other (5)

24.7

%

24.0

%

24.5

%

22.9

%

Total

100.0

%

100.0

%

100.0

%

100.0

%

(1)

Calculated as used vehicle units financed for respective channel as a percentage of total used units sold.

(2)

Includes CAF's Tier 3 loan originations, which represent less than 1% of total used units sold.

(3)

Third-party finance providers who generally pay us a fee or to whom no fee is paid.

(4)

Third-party finance providers to whom we pay a fee.

(5)

Represents customers arranging their own financing and customers that do not require financing.

Selected Operating Ratios

Three Months Ended February 28

Years Ended February 28

(In millions)

2018

% (1)

2017

% (1)

2018

% (1)

2017

% (1)

Net sales and operating revenues

$

4,084.2

100.0

$

4,050.0

100.0

$

17,120.2

100.0

$

15,875.1

100.0

Gross profit

$

536.7

13.1

$

562.2

13.9

$

2,328.9

13.6

$

2,183.3

13.8

CarMax Auto Finance income

$

101.1

2.5

$

82.9

2.0

$

421.2

2.5

$

369.0

2.3

Selling, general, and administrative expenses

$

408.8

10.0

$

385.4

9.5

$

1,617.1

9.4

$

1,488.5

9.4

Interest expense

$

19.7

0.5

$

16.4

0.4

$

70.7

0.4

$

56.4

0.4

Earnings before income taxes

$

210.1

5.1

$

242.3

6.0

$

1,063.6

6.2

$

1,006.4

6.3

Net earnings

$

122.1

3.0

$

152.6

3.8

$

664.1

3.9

$

627.0

3.9

(1)

Calculated as a percentage of net sales and operating revenues.

Gross Profit

Three Months Ended February 28

Years Ended February 28

(In millions)

2018

2017

Change

2018

2017

Change

Used vehicle gross profit

$

366.2

$

375.6

(2.5

)%

$

1,567.6

$

1,451.7

8.0

%

Wholesale vehicle gross profit

93.9

85.5

9.8

%

392.5

362.6

8.2

%

Other gross profit

76.6

101.1

(24.2

)%

368.8

369.0

0.0

%

Total

$

536.7

$

562.2

(4.5

)%

$

2,328.9

$

2,183.3

6.7

%

Gross Profit per Unit

Three Months Ended February 28

Years Ended February 28

2018

2017

2018

2017

$ per unit(1)

%(2)

$ per unit(1)

%(2)

$ per unit(1)

%(2)

$ per unit(1)

%(2)

Used vehicle gross profit

$

2,147

10.7

$

2,134

10.9

$

2,173

10.9

$

2,163

10.9

Wholesale vehicle gross profit

$

946

17.8

$

938

18.4

$

961

18.0

$

926

17.4

Other gross profit

$

449

60.0

$

574

75.6

$

511

67.5

$

550

70.7

Total gross profit

$

3,147

13.1

$

3,194

13.9

$

3,228

13.6

$

3,252

13.8

(1)

Calculated as category gross profit divided by its respective units sold, except the other and total categories, which are divided by total used units sold.

(2)

Calculated as a percentage of its respective sales or revenue.

SG&A Expenses

Three Months Ended February 28

Years Ended February 28

(In millions)

2018

2017

Change

2018

2017

Change

Compensation and benefits (1)

$

212.8

$

205.9

3.4

%

$

863.2

$

803.9

7.4

%

Store occupancy costs

86.4

78.2

10.5

%

337.3

300.8

12.1

%

Advertising expense

43.4

40.1

8.2

%

157.7

144.2

9.3

%

Other overhead costs (2)

66.2

61.2

8.2

%

258.9

239.6

8.1

%

Total SG&A expenses

$

408.8

$

385.4

6.1

%

$

1,617.1

$

1,488.5

8.6

%

SG&A per used unit

$

2,397

$

2,190

$

207

$

2,241

$

2,217

$

24

(1)

Excludes compensation and benefits related to reconditioning and vehicle repair service, which are included in cost of sales.

Percentage of total average managed receivables (quarterly amounts are annualized).

Earnings Highlights

Three Months Ended February 28

Years Ended February 28

(In millions except per share data)

2018

2017

Change

2018

2017

Change

Net earnings

$

122.1

$

152.6

(20.0

)%

$

664.1

$

627.0

5.9

%

Diluted weighted average shares outstanding

182.2

189.1

(3.6

)%

184.5

192.2

(4.0

)%

Net earnings per diluted share

$

0.67

$

0.81

(17.3

)%

$

3.60

$

3.26

10.4

%

Planned Store Openings

We currently plan to open the following stores within 12 months from February 28, 2018. During this period, we will be entering nine new television markets and expanding our presence in six existing television markets. Of the 15 stores we plan to open during the 12 months ending February 28, 2019, 10 will be in Metropolitan Statistical Areas having populations of 600,000 or less, which we define as small markets.

Location

Television Market

MetropolitanStatistical Area

PlannedOpening Date

Winterville, North Carolina(1)

Greenville/New Bern/Washington(2)

Greenville

Q1 Fiscal 2019

McKinney, Texas

Dallas/Ft. Worth

Dallas/Ft. Worth

Q1 Fiscal 2019

Jensen Beach, Florida

Miami/Ft. Lauderdale/W. Palm Beach

Port St. Lucie

Q1 Fiscal 2019

Santa Fe, New Mexico

Albuquerque/Santa Fe

Santa Fe

Q2 Fiscal 2019

Warner Robins, Georgia

Macon(2)

Warner Robins

Q2 Fiscal 2019

Norman, Oklahoma

Oklahoma City

Oklahoma City

Q2 Fiscal 2019

Wilmington, North Carolina

Wilmington(2)

Wilmington

Q3 Fiscal 2019

Lafayette, Louisiana

Lafayette(2)

Lafayette

Q3 Fiscal 2019

Corpus Christi, Texas

Corpus Christi(2)

Corpus Christi

Q3 Fiscal 2019

Shreveport, Louisiana

Shreveport(2)

Shreveport

Q3 Fiscal 2019

Amherst, New York

Buffalo (2)

Buffalo

Q4 Fiscal 2019

Melbourne, Florida

Orlando/Daytona Beach

Palm Bay/Melbourne

Q4 Fiscal 2019

Montgomery, Alabama

Montgomery/Selma(2)

Montgomery

Q4 Fiscal 2019

Vancouver, Washington

Portland

Portland/Vancouver

Q4 Fiscal 2019

Kenner, Louisiana

New Orleans(2)

New Orleans

Q4 Fiscal 2019

(1)

Store opened in March 2018.

(2)

Represents new television market as of planned store opening date.

Normal construction, permitting or other scheduling delays could shift the opening dates of any of these stores into a later period.

Conference Call Information

We will host a conference call for investors at 9:00 a.m. ET today, April 4, 2018. Domestic investors may access the call at 1-888-298-3261 (international callers dial 1-706-679-7457). The conference I.D. for both domestic and international callers is 75171619. A live webcast of the call will be available on our investor information home page at investors.carmax.com.

A webcast replay of the call will be available at investors.carmax.com through June 21, 2018. A telephone replay also will be available through April 11, 2018, and may be accessed by dialing 1-855-859-2056 (international callers dial 1-404-537-3406). The conference I.D. for both domestic and international callers is 75171619.

First Quarter Fiscal 2019 Earnings Release Date

We currently plan to release results for the first quarter ending May 31, 2018, on Friday, June 22, 2018, before the opening of trading on the New York Stock Exchange. We plan to host a conference call for investors at 9:00 a.m. ET on that date. Information on this conference call will be available on our investor information home page at investors.carmax.com in June 2018.

About CarMax

CarMax is the nation’s largest retailer of used cars, currently operating 189 stores in 41 states nationwide. CarMax revolutionized the auto industry by delivering the honest, transparent and high-integrity car buying experience customers want and deserve. For more than 20 years, CarMax has made car buying more ethical, fair and stress-free by offering a no-haggle, no-hassle experience and an incredible selection of vehicles. CarMax makes selling your car easy too, by offering no-obligation appraisals good for seven days. At CarMax, we’ll buy your car even if you don’t buy ours®. CarMax has more than 25,000 associates nationwide andfor 14 consecutive years has been named as one of the Fortune 100 Best Companies to Work For®. During the twelve months ended February 28, 2018, the company retailed 721,512 used vehicles and sold 408,509 wholesale vehicles at its in-store auctions. For more information, access the CarMax website at www.carmax.com.

Forward-Looking Statements

We caution readers that the statements contained in this release about our future business plans, operations, opportunities or prospects, including without limitation any statements or factors regarding expected sales, margins, expenses, capital expenditures, debt obligations, tax rates or earnings, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by the use of words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “outlook,” “plan,” “predict,” “should,” “will” and other similar expressions, whether in the negative or affirmative. Such forward-looking statements are based upon management’s current knowledge and assumptions about future events and involve risks and uncertainties that could cause actual results to differ materially from anticipated results. Among the factors that could cause actual results and outcomes to differ materially from those contained in the forward-looking statements are the following:

Changes in the competitive landscape and/or our failure to successfully adjust to such changes.

Events that damage our reputation or harm the perception of the quality of our brand.

Changes in general or regional U.S. economic conditions.

Changes in tax law, including the effect of the 2017 Tax Act.

Changes in the availability or cost of capital and working capital financing, including changes related to the asset-backed securitization market.

Changes in the availability of extended protection plan products from third-party providers.

Factors related to the regulatory and legislative environment in which we operate.

Factors related to geographic and sales growth, including the inability to effectively manage our growth.

The failure of or inability to sufficiently enhance key information systems.

The effect of various litigation matters.

Adverse conditions affecting one or more automotive manufacturers, and manufacturer recalls.

The inaccuracy of estimates and assumptions used in the preparation of our financial statements, or the effect of new accounting requirements or changes to U.S. generally accepted accounting principles.

The performance of the third-party vendors we rely on for key components of our business.

Factors related to seasonal fluctuations in our business.

The occurrence of severe weather events.

Factors related to the geographic concentration of our stores.

For more details on factors that could affect expectations, see our Annual Report on Form 10-K for the fiscal year ended February 28, 2017, and our quarterly or current reports as filed with or furnished to the U.S. Securities and Exchange Commission. Our filings are publicly available on our investor information home page at investors.carmax.com. Requests for information may also be made to the Investor Relations Department by email to investor_relations@carmax.com or by calling 1-804-747-0422 ext. 4391. We undertake no obligation to update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise.

CARMAX, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(UNAUDITED)

Three Months Ended February 28

Years Ended February 28

(In thousands except per share data)

2018

%(1)

2017

%(1)

2018

%(1)

2017

%(1)

SALES AND OPERATING REVENUES:

Used vehicle sales

$

3,429,247

84.0

$

3,450,261

85.2

$

14,392,360

84.1

$

13,270,662

83.6

Wholesale vehicle sales

527,245

12.9

465,936

11.5

2,181,156

12.7

2,082,464

13.1

Other sales and revenues

127,726

3.1

133,763

3.3

546,693

3.2

521,992

3.3

NET SALES AND OPERATING REVENUES

4,084,218

100.0

4,049,960

100.0

17,120,209

100.0

15,875,118

100.0

COST OF SALES:

Used vehicle cost of sales

3,063,051

75.0

3,074,677

75.9

12,824,741

74.9

11,818,951

74.4

Wholesale vehicle cost of sales

433,343

10.6

380,432

9.4

1,788,704

10.4

1,719,821

10.8

Other cost of sales

51,096

1.3

32,691

0.8

177,905

1.0

153,052

1.0

TOTAL COST OF SALES

3,547,490

86.9

3,487,800

86.1

14,791,350

86.4

13,691,824

86.2

GROSS PROFIT

536,728

13.1

562,160

13.9

2,328,859

13.6

2,183,294

13.8

CARMAX AUTO FINANCE INCOME

101,073

2.5

82,898

2.0

421,182

2.5

368,984

2.3

Selling, general and administrative expenses

408,814

10.0

385,413

9.5

1,617,051

9.4

1,488,504

9.4

Interest expense

19,666

0.5

16,353

0.4

70,745

0.4

56,416

0.4

Other (income) expense

(802

)

—

977

—

(1,363

)

—

953

—

Earnings before income taxes

210,123

5.1

242,315

6.0

1,063,608

6.2

1,006,405

6.3

Income tax provision

87,977

2.2

89,712

2.2

399,496

2.3

379,435

2.4

NET EARNINGS

$

122,146

3.0

$

152,603

3.8

$

664,112

3.9

$

626,970

3.9

WEIGHTED AVERAGE COMMON SHARES:

Basic

180,630

187,020

182,660

190,343

Diluted

182,239

189,082

184,470

192,215

NET EARNINGS PER SHARE:

Basic

$

0.68

$

0.82

$

3.64

$

3.29

Diluted

$

0.67

$

0.81

$

3.60

$

3.26

(1)

Percents are calculated as a percentage of net sales and operating revenues and may not total due to rounding.

CARMAX, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

As of

February 28

February 28

(In thousands except share data)

2018

2017

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

44,525

$

38,416

Restricted cash from collections on auto loan receivables

399,442

380,353

Accounts receivable, net

133,321

152,388

Inventory

2,390,694

2,260,563

Other current assets

93,462

41,910

TOTAL CURRENT ASSETS

3,061,444

2,873,630

Auto loan receivables, net

11,535,704

10,596,076

Property and equipment, net

2,667,061

2,518,393

Deferred income taxes

63,256

150,962

Other assets

158,807

140,295

TOTAL ASSETS

$

17,486,272

$

16,279,356

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES:

Accounts payable

$

529,733

$

494,989

Accrued expenses and other current liabilities

278,771

266,128

Accrued income taxes

—

1,404

Short-term debt

127

62

Current portion of finance and capital lease obligations

9,994

9,491

Current portion of non-recourse notes payable

355,433

333,713

TOTAL CURRENT LIABILITIES

1,174,058

1,105,787

Long-term debt, excluding current portion

995,479

952,562

Finance and capital lease obligations, excluding current portion

490,369

486,645

Non-recourse notes payable, excluding current portion

11,266,964

10,387,231

Other liabilities

242,553

238,551

TOTAL LIABILITIES

14,169,423

13,170,776

Commitments and contingent liabilities

SHAREHOLDERS’ EQUITY:

Common stock, $0.50 par value; 350,000,000 shares authorized; 179,747,894 and 186,548,602 shares issued and outstanding as of February 28, 2018 and 2017, respectively

89,874

93,274

Capital in excess of par value

1,234,047

1,188,578

Accumulated other comprehensive loss

(54,312

)

(56,555

)

Retained earnings

2,047,240

1,883,283

TOTAL SHAREHOLDERS’ EQUITY

3,316,849

3,108,580

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$

17,486,272

$

16,279,356

CARMAX, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

Years Ended February 28

(In thousands)

2018

2017 (1)

OPERATING ACTIVITIES:

Net earnings

$

664,112

$

626,970

Adjustments to reconcile net earnings to net cash used in operating activities:

Depreciation and amortization

179,942

168,875

Share-based compensation expense

61,879

91,595

Provision for loan losses

137,591

150,598

Provision for cancellation reserves

62,749

64,120

Deferred income tax provision

81,007

2,324

Other

1,298

4,169

Net decrease (increase) in:

Accounts receivable, net

19,067

(20,217

)

Inventory

(130,131

)

(328,534

)

Other current assets

(34,620

)

(2,781

)

Auto loan receivables, net

(1,077,219

)

(1,209,782

)

Other assets

(2,361

)

143

Net increase (decrease) in:

Accounts payable, accrued expenses and other current liabilities and accrued income taxes

38,286

74,579

Other liabilities

(82,150

)

(77,370

)

NET CASH USED IN OPERATING ACTIVITIES

(80,550

)

(455,311

)

INVESTING ACTIVITIES:

Capital expenditures

(296,816

)

(418,144

)

Proceeds from disposal of property and equipment

97

1,229

Increase in restricted cash from collections on auto loan receivables

(19,089

)

(36,524

)

Increase in restricted cash in reserve accounts

(22,343

)

(17,390

)

Release of restricted cash from reserve accounts

18,321

11,250

Purchases of investments

(8,649

)

(6,724

)

Sales of investments

1,692

730

NET CASH USED IN INVESTING ACTIVITIES

(326,787

)

(465,573

)

FINANCING ACTIVITIES:

Increase (decrease) in short-term debt, net

65

(366

)

Proceeds from issuances of long-term debt

4,203,150

2,974,600

Payments on long-term debt

(4,160,650

)

(2,734,600

)

Cash paid for debt issuance costs

(16,261

)

(17,118

)

Payments on finance and capital lease obligations

(8,997

)

(10,817

)

Issuances of non-recourse notes payable

10,198,962

9,610,035

Payments on non-recourse notes payable

(9,296,773

)

(8,395,360

)

Repurchase and retirement of common stock

(579,570

)

(564,337

)

Equity issuances

73,520

59,869

NET CASH PROVIDED BY FINANCING ACTIVITIES

413,446

921,906

Increase in cash and cash equivalents

6,109

1,022

Cash and cash equivalents at beginning of year

38,416

37,394

CASH AND CASH EQUIVALENTS AT END OF YEAR

$

44,525

$

38,416

(1)

In connection with our adoption of Financial Accounting Standards Board (“FASB”) ASU 2016-09 during the first quarter of fiscal 2018, cash flows related to excess tax benefits from share-based payment arrangements are now classified as operating activities rather than financing activities. Prior year amounts have been reclassified to conform to the current year’s presentation.